Investors keep an eye on rising rates

July 8, 2014 - Investor
confidence in the commercial property market pulled back
slightly in the June 2014 quarter from the record highs
achieved in late 2013 and early 2014, a Colliers
International survey shows.

The level of confidence in
New Zealand was a net positive 25% in the June 2014 quarter,
down from 28% in the March quarter, and a record 31% in
December. Confidence is now level with September 2013.

“Overall, there is a lot of optimism about the
financial returns available from commercial property, but
investors are keeping a close eye on the impact that rising
interest rates will have on their debt servicing capability
and tenant cash flows,” says Chris Dibble, Colliers
International’s national research manager. “With 75
basis points of rises in the official cash rate (OCR) in the
last six months, and more expected to follow, investors will
need to focus on the underlying fundamentals of investment
purchasing, considering quality of location and tenancy
covenants, add-value opportunities, and their own financial
situation.”

Auckland investors remain the most
confident in the country, with a net positive 52%, a
reflection of the positive population, employment and
business environment that provides for just over a third of
the country’s total economic output.

Following
Auckland, the next highest confidence level was recorded in
Queenstown (48%), which continues to benefit from increasing
population and tourism growth. Other centres with strong
investor confidence include Christchurch (41%), Tauranga/Mt
Maunganui (36%) and Hamilton (25%).

Despite the high
levels of optimism, investor confidence is down in each of
these areas compared to last quarter. Only two of the 11
centres surveyed showed a rise in confidence over the last
three months, in Napier/Hastings and Palmerston North.
Hamilton and Tauranga/Mt Maunganui recorded increases year
on year.

“The growing number of commercial sales
recorded over the last five years is likely to slow over the
next year as investors become more discerning in their
investment selection criteria, reducing the overall number
of properties sold. However, this is unlikely to impact
values, with properties that show solid passive returns or
add-value opportunity still being chased by a growing pool
of investors. Our latest publications show forecasts of
value growth in many main centres, especially at the top-end
of the market given the focus on quality from both investors
and tenants,” says Dibble.

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